Negative gearing and CGT changes explained: What was announced in the federal budget

Treasurer Jim Chalmers has unveiled the biggest changes to negative gearing and the capital gains tax discount in decades, using Tuesday night’s federal budget to deliver sweeping reforms that could reshape Australia’s property market for years to come and put 75,000 extra young Australians on the housing ladder.

The long-anticipated housing tax changes – described by Chalmers as part of a “brave” economic agenda – mark one of the most significant interventions into Australia’s property market in a generation, ending years of reluctance from governments to touch the tax settings that have long-fuelled property investment.

Tax breaks for landlords will be scaled back. Negative gearing will be abolished for new investors and the current 50 per cent capital gains tax will be replaced with an inflation-linked method that existed prior to 1999. The government is extending the ban on foreign buyers purchasing established homes until mid‑2029.

“This is a budget for first-home buyers. We need to take these decisive steps, these contentious steps, to rebalance the tax system,” Chalmers told the ABC.

Delivering his fifth federal budget, Chalmers said the Albanese government’s total housing investment has now reached a record $47 billion.

“Australia’s long-standing housing shortage is making homes unaffordable,” he told parliament. “This challenge hits young workers and families hard, and we’re addressing it from every responsible angle.”

Chalmers said since 1999, house prices have risen 400 per cent – more than twice as fast as average incomes. The tax reforms would “help rebalance a system where house prices have decoupled from incomes”, and assist 75,000 Australians to buy a home, he said.

Economists and property analysts say the changes could have major implications for house prices, rents, investor demand and housing affordability, with homeowners, investors and first-home buyers now watching closely to see what happens next.

Here’s what was announced – and what it means for homeowners, investors and buyers.

What changed?

• Negative gearing has been scrapped and will apply to new builds only from 1 July 2027
• The 50 per cent capital gains tax discount will end from 1 July 2027
• Existing investment properties will remain unchanged for all properties held before Budget night
• Investors who buy new builds will still be able to deduct losses from other income

What is negative gearing?

Negative gearing allows property investors to deduct losses from their taxable income when the costs of owning a property exceed the rental income it generates.

Supporters say it encourages investment and increases housing supply, while critics argue it pushes up property prices and disproportionately benefits wealthier Australians.

What is the capital gains tax discount?

The capital gains tax discount reduces the amount of tax investors pay when they sell an asset, such as property, for a profit.

Under the current system, investors who hold an asset for more than 12 months receive a 50 per cent discount on capital gains tax.

The government will replace the 50 per cent discount with a discount based on inflation and introduce a minimum 30 per cent tax on gains from 1 July 2027.

This reform means that investors will only pay tax on their real capital gain, restoring the original intent of the CGT arrangements. The CGT reforms will only apply to gains arising after 1 July 2027. Investors in new builds will be able to choose the 50 per cent CGT discount or the new arrangements.

Who will be affected?

Existing property investors

Existing property investors will not be affected by the changes. The CGT reforms will only apply to gains arising after 1 July 2027.

Future investors

New investors will be affected by the changes and are arguably one of the biggest “losers” of the 2026 federal budget.

New investors will no longer be able to deduct losses from a rental property from their taxable income.

Investors who buy established housing after Budget night will still be able to deduct losses against residential property income. They will be able to carry forward unused losses to future years but won’t be able to deduct them against other income like wages. Investors who buy new builds will still be able to deduct losses from other income.

First-home buyers

The government has said its tax reforms will help an extra 75,000 young Australians into the property market.

Finance minister Katy Gallager told the ABC on Tuesday afternoon that by “making negative gearing less attractive”, owners occupiers will get better access to home ownership.

The latest data from Domain’s House Price Report shows Australia’s median house price has passed $1.3 million. House prices in Brisbane and Perth have jumped by more than $200,000 over the past 12 months, by $154,000 in Adelaide and $110,000 in Sydney and the research shows buyers are taking years to save for entry-level homes.

Investors made up roughly 40 per cent of new housing loans in Australia in the December quarter of 2025, according to the ABS – nearly double the number of first-home buyer housing loans. That’s historically very high and is one of the reasons the negative gearing/CGT debate has become so politically charged.

In theory, the changes to negative gearing will give first-home buyers a better chance of getting into the market because there will be less competition from investors, who will be disincentivised by the government’s tax reforms.

Buyer’s agent Lloyd Edge told Domain any measure that reduces investor competition in the established housing market may give first-home buyers a slightly better chance, particularly in suburbs where they are regularly being outbid by investors.

Economists remain divided on how much impact the measures would actually have on house prices. Edge says it would be modest.

“The biggest issue for first-home buyers is not just who they are bidding against, but how few suitable and affordable homes are available in the first place. First-home buyers are still navigating limited supply, high construction costs, population growth, borrowing constraints and years of undersupply,” he said.

“So while changes to negative gearing and the capital gains tax discount may take some heat out of investor demand, particularly for established properties, the impact on prices is likely to be modest unless it is matched by a serious increase in housing supply.”

Will house prices fall?

Property experts have long debated whether changes to negative gearing and capital gains tax would trigger a major housing downturn but Treasury said house prices would not fall. Chalmers said price growth would slow: “what we’re doing here is not targeting a particular price. What we’re trying to do is make sure there are more affordable options for people to buy,” he said.

Some economists argue reducing investor incentives could weaken demand and place downward pressure on prices, particularly in investor-heavy markets, although predictions are that any price falls will be minimal.

Andrew Lilley, chief interest rate strategist at Barranjoey, recently wrote that house prices would fall by only 1 per cent to 4 per cent.

Others say Australia’s chronic housing shortage, population growth and supply constraints are likely to continue supporting prices.

Damian Hackett, CEO of Place Estate Agents, said predictions that house prices could fall was one of the biggest misconceptions Australians have about how these new reforms will work.

“In reality, there’ll be people out there predicting doom and gloom because that’s what gets attention,” he said. “[But] the proposed reforms don’t automatically mean property prices suddenly fall across the board. In most markets, prices generally only come back when there’s a significant increase in supply coinciding with a decrease in demand.

“The proposed changes may take some of the heat out of parts of the established housing market by shifting future investor demand toward new housing and apartment supply. It could also further restrict supply in the established market if existing investors choose to hold onto grandfathered properties rather than sell.”

Will rents rise?

Treasury said it expects rents will rise by $2 a week but experts have slammed the reforms and warned that tenants will “pay the price”.

Nine’s finance editor Chris Kohler said rents will likely “go through the roof”, while Ray White Group managing director Dan White said out of Australia’s 2.9 million renters, many will still not be able to afford to transition to buying – and be left vulnerable.

“Limiting negative gearing to new builds assumes rental supply is interchangeable. It is not. A brand new apartment in an outer growth corridor does not replace a rental home near a school, hospital or train line. Regional markets are even more exposed, many simply don’t have the development pipelines to absorb this kind of policy shock,” he said.

Buyer’s agent and PIPA chair Cate Bakos said reducing investor participation would worsen rental shortages and place further upward pressure on rents.

“Investors have told us that if there were changes to negative gearing and capital gains tax, one-third wouldn’t invest – and that’s a sharp shift,” she said. “Current investors have indicated they will sell. If there are less landlords, there’s less rental properties, which drives the cost of remaining rentals up.”

Owner of real estate management firm Blink Property Nathan Birch said repealing to negative gearing may put Australians on the margins at risk. Birch said he has had conversations with landlords who intend to raise their rents by up to 30 per cent to absorb the loss of negative gearing. 

Ninety per cent of the 7000 homes on Blink Property’s rental roll are an entry-level, at an average price of $400 per week. Birch anticipates they will increase to $550 per week.

“This will be catastrophic for so many Australians, and the government really needs to consider the wave of homelessness that could follow, particularly for our most vulnerable, including those on the pension or disability support who have no options at all to raise their income,” he said.

Birch argues the policy could trigger a chain reaction of financial pressure, especially on rentvesters, whose own rental costs will increase while at the same time the benefits of negative gearing are wound back.

However, supporters say the reforms are unlikely to significantly affect rental supply in the long term and could help rebalance the market toward owner-occupiers.

Bakos admitted a shrinking rental pool could be offset if tenants turned into owner-occupiers.

Why is negative gearing so controversial?

Negative gearing has become one of the most politically sensitive issues in Australian housing.

Supporters say it helps ordinary Australians build wealth and invest for retirement.

Critics argue it has contributed to rising property prices and widened the gap between homeowners and younger Australians struggling to enter the market.

The policy has repeatedly sparked fierce political debate, with previous attempts at reform triggering major backlash from the property industry and investors.

• with Emily Power